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After a week of chaos in the banking industry, including the collapse of Silicon Valley Bank (SIVB) and Signature Bank (SBNY), and the forced marriage of UBS and Credit Suisse, investors’ focus has now shifted to the Federal Reserve. Fed officials are set to convene this week for one of its most uncertain policy meetings of the year, with the central bank now at a crossroads between fighting inflation, and maintaining financial stability. “They really have to balance out this inflation fighting with stability,” Meera Pandit, JPMorgan Asset Management Global Market Strategist, tells Yahoo Finance. “There’s a lot of evidence that the Fed should start winding down it’s Fed hiking cycle.” Pandit lays out evidence that a Fed pause is on the table: February’s Consumer Price Index gains, wage growth, consumer expectations of inflation, tightening financial conditions, and banking woes show that it “makes sense for the Fed to get closer and closer towards a pause,” she says. Key Video Moments 00:00:01: What markets are pricing in 00:00:15: Fed balancing inflation vs. financial stability 00:00:43: Evidence of a future fed pause
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The Federal Reserve’s decision to keep interest rates near zero and continue its asset purchase program was based on a desire to prioritize financial stability over concerns about inflation, according to market strategist Edward Moya.

In a recent interview, Moya noted that the Fed has been more focused on maintaining the stability of financial markets in the wake of pandemic-related turmoil. He argued that the central bank recognizes the importance of keeping markets stable in order to encourage economic growth and alleviate the pressure on businesses and consumers still struggling to recover.

While Moya acknowledged the potential risks of consumer price inflation, he suggested that the Fed’s current policy approach reflects a belief that such concerns are not as pressing as those related to financial stability. He argued that the Fed has taken a more cautious stance in order to avoid potential market volatility that could harm economic growth.

Moya’s analysis echoes recent remarks from Fed officials, who have emphasized the importance of financial stability in their policymaking decisions. Earlier this month, Fed Chair Jerome Powell told Congress that “financial stability vulnerabilities overall are moderate” but remained “something we’re watching very carefully.”

Powell also noted that while inflation is a key concern, the Fed is currently more focused on ensuring economic recovery and managing the long-term impacts of the pandemic. He emphasized that the central bank would continue to monitor inflation, but stressed that its current policy stance reflects a belief that inflationary pressures are temporary and will eventually dissipate.

Overall, Moya’s analysis suggests that the Fed’s current focus on financial stability reflects a recognition that the long-term health of the economy relies in part on maintaining stable financial markets. While inflation remains a concern, the central bank’s current policy approach reflects a belief that prioritizing stability is key to supporting economic growth and ensuring that businesses and consumers can recover from the pandemic’s impact.